Published on Jobs and Development

Financial Crises, Jobs, and Spain

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If you're hoping to avoid Olympics coverage in the next few weeks, you probably don't need me to tell you that you may be out of luck. However, I hope the papers and posts below give you an alternative to endless TV or even physical exertion.

National Unemployment Clock Unveiling | June 10, 2009 by keepjobsincanada

Keynes labor demand revisited. Despite its importance in business cycles, there have been surprisingly few empirical tests for a Keynesian labor demand – that is, the short-run demand for labor is sensitive to the demand for goods, meaning that firms hire and fire workers rather than adjust prices. Most tests that have occurred have been based on aggregate time series (Gali and Rabanal, 2004, and Basu, Fernand, and Kimball, 2006). In an intriguing new paper Bils, Klenow, and Malin (2012) use U.S. cross-industry data up to the Great Recession to test the sensitivity of the short-run demand for labor to the demand for goods. The majority of the evidence supports a Keynesian labor demand model over flexible prices with constant mark-ups – the policy implication being the use of active monetary policy and fiscal policy that emphasizes spending.

Back to the Phillips curve. Given that U.S. economic output seems to have recovered since the recent financial crisis and subsequent Great Recession, but jobs haven't, many economists worry that the only hope for lowering unemployment is allowing inflation to rise. However Guillermo Calvo, Fabrizio Coricelli, and Pablo Ottonello disagree. In a recent post in VOX, they suggest that the nature of a crisis affects the nature of the recovery. Specifically, they find that advanced economies and low inflation emerging market economies display a degree of joblessness that exceeds the levels reached during non-financial crises. What does this mean for monetary policy? The authors suggest that the U.S. Federal Reserve, in coordination with the European Central Bank, focuses on liquidity and credit to increase the flow and stock of safe assets.

From the trenches of economic policy. On July 13, the Spanish government approved a new labor reform (covering benefits) and an austerity program. In a post, Samuel Bentolila explains (in Spanish) how the reform will affect unemployment, now at 23 percent for the country as a whole, and 50 percent for youth. He argues that even though the reform is motivated by reducing government expenditures, it may help employment in the medium term, although in the short term, jobs may be scarcer. He also laments that the Spanish government hasn’t used the opportunity to comprehensively redesign active and passive labor market policies.

At the global level. On November 8-9, the International Monetary Fund will hold the Thirteenth Jacques Polak Annual Research Conference on a topic related to this blog: “Labor Markets through the Lens of the Great Recession.” The call for papers highlights a range of issues from reforms and jobs to a comparative performance of labor markets to wage distributions and inequality.

This post was first published on the Jobs Knowledge Platform.


Claudia Sepúlveda

Lead Economist, Development Economics Vice Presidency, World Bank

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